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Sun's bright future according to McNealy

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Sun Microsystems

Stephen Shankland CNET News

Published: 27 Jun 2005 12:05 BST

How do you think the OpenSolaris launch went? Have you learned anything since you put it out there?
I always make the Al Gore-ish statement that we invented community development. We started doing community development before we got founded. Three or four years before we founded Sun, one of our founders (Bill Joy) was pioneering the idea of open source community-developed kernels in the operating system space, doing BSD licensing models with the Berkeley Software Distribution. We were the Red Hat of Berkeley before Linus (Torvalds, the Linux founder) was out of diapers.

Is there anything we've learned new around community development? During the late 1980s and early 1990s we let Solaris get encumbered as we were trying to build features and compete with mainframe OSes. Plus the fact that we did the AT&T Unix System V Release 4 base, which required us to buy our way out of the SCO license. It just occurred to us, probably six or seven years ago, that we can't do what we want to do with the source code here. We spent a long, long time getting the encumbrances out. They kind of spaghettied themselves deeply into the operating environment. The one thing we learned was just don't let the stuff get encumbered again. That was the mistake we made, by going too fast too quick. By going a little slower and letting the community help, we wouldn't have gotten encumbered. We would have been in better shape if we'd kept it open source along the way.

We've never had higher customer satisfaction with respect to how our product works, how it stays up out in the field. That was not true back in the (dot-com) bubble. We were just getting the stuff out the door as fast as we could, and that wasn't a good thing.

How does StorageTek fit in?
We have done very well in the server space. We have lagged in market penetration on the data management side...We have a 25 percent, plus or minus a few points, storage attach rate. It should be 70 or 80 percent. We're aren't even getting the bun with our burger, much less the fries, the milk shake and the hot apple pie.

(In the storage market) there's NetApp, there's EMC, there's IBM, there's Sun, and there's the old Compaq storage business. We have better product now than EMC. The (StorEdge) 6920 with Pirus virtualisation and provisioning blows the doors off the EMC product line. What we've done with Hitachi in the high end, Dot Hill in the low end, Seagate and LSI Logic -- we have integrated all this into a wonderful environment. It's a wonderful story. We have no way to bring this to market.

All of a sudden we grow by over an order of magnitude the number of data storage sales specialists we have in the field, plus a couple (of) thousand service folks. Why do people choose EMC over us? They trust EMC. StorageTek has a very outstanding reputation of safeguarding their data asset. StorageTek has 17,000 customers. They archive 36 percent of the planet's archived data on their tape libraries. All these tape libraries are tied to IBM mainframes. You'll trade out your mainframe before you trade out your tape library.

Everybody says tape's going away. I don't think so. It hasn't been going away for 20 years like everybody's said. And only more stuff is getting archived. Think about all these camera clicks that are going to get archived. With HIPAA and Sarbanes-Oxley (regulations), the world is only going to need to archive more.

Financially it made a lot of sense. We were making $100m (£55m) on the $3bn (£1.65bn), pretax. StorageTek is making several hundred million dollars, pretax. It's immediately accretive, non-GAAP. From a cash flow perspective, they're generating cash, we're generating cash. We don't need to have any revenue synergies to have this be a positive for our shareholders. Any cost synergies are all upside. The problem with the Compaq-HP merger is it was all about cost synergies, and cost synergies are very disruptive.

Since they're profitable and going up, do you think that'll get you out of your GAAP jail so you'll be able to tell your story?
We're very close. Last quarter, we lost $3m (£1.65m) dollars. We are nine months into this fiscal year. Year-over-year, on an operating margin basis, we have improved for the first nine months, year-over-year, $550m (£302m). If you believe what the analysts say, it's going to be between a $700m and $800m (between £384m and £439m) improvement year-over-year in operating margins, pretax, pre-GAAP, pre-one-time any of that stuff. That, on an $11bn (£6bn) or so revenue run rate, is stunning. If I do that again next year, move over Jack Welch in the hall of fame.